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Vol. 15, No. 46 Week of November 14, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

The Explorers 2010: Alaska: A brave new world for explorers, producers

A review of federal policy assaults on Alaska’s economy and ramifications for oil and gas exploration and production

Dave Harbour

Shakespeare coined a phrase for Miranda in Act V of “The Tempest,” when he wrote of a brave new world filled with good people. By Aldus Huxley’s time other authors had used the term—mostly in positive ways. But Huxley’s 1931 parody of an H. G. Wells utopian novel painted a world where leaders regulate (limit) the world’s population and fetuses are cultured in decanters and conformed by chemical persuasion into desired “classes.”

When Huxley wrote “Brave New World,” his futuristic novel set in 2540, he had no idea how quickly world evolution could occur; he had no concept of the exponential leapfrogging of social, political and scientific paradigms that modern jet planes, computers, the human genome project and the Internet would enable.

Alaskans are witnessing a brave new world evolve before their eyes. It is a world wherein the trend toward greater federal control of Alaska — aided and abetted by environmental activism — has quickly morphed into a full-fledged, tsunami-like paradigm shift affecting Alaska’s economic future. Economist David Reaume wrote in the Anchorage Daily News in October: “One would think that Alaska’s low rate of growth of inflation-adjusted GDP would produce a startling high and rising unemployment rate and, in truth, it has risen dramatically in 2009 and 2010.”

Seeing evidence of this paradigm shift a year ago, I editorialized in Northern Gas Pipelines about the volume of federal government attacks on Alaska’s wellbeing. I suggested that the cumulative weight and frequency of these attacks had the effect of imposing on Alaska’s economy, a “death by a thousand cuts.” Since then, federal attacks have intensified, leading to a more rapid destruction of Alaska’s economic potential. Alaska Support Industry Alliance President Joe Hegna observed this fall that, “Our oil and gas industry has lost 1,700 jobs in less than thre years. Unemployment claims have doubled. Drilling – development and exploratory – is at its lowest level in at least 10 years. Billions of dollars in investments have been lost or deferred.”

While state tax, leasing and regulatory policies have an undeniable impact on Alaska’s investment climate, here we will review the effect of a hostile federal regime on Alaska’s economic health. As we absorb these federal initiatives — none of which supports reasonable economic growth — we should keep in mind that the interests of Alaska’s explorers and producers are pretty well aligned with Alaskan parents. After all, parents want a good future for their kids and themselves. At Alaska’s Sixth Annual Oil and Gas Congress in September, former Alaska Gas Pipeline Federal Coordinator, Drue Pearce, testified, “…the Obama Administration is … engaged in a very effective agenda of shutting down Alaska’s oil and gas industry.”

Here are a few federal actions occurring since Barack Obama became president, none of which benefit and all of which endanger Alaska’s economic health:

• April 2009. Department of Interior Secretary Ken Salazar visited Anchorage and other cities to conduct hearings on the Minerals Management Service (MMS, now BOEM) five-year leasing programs. The 2007-12 and 2012-17 programs have presented no new opportunities for exploration, only orders from the Secretary to cancel programs, conduct more studies and deny access by rejecting permit applications.

• June 2009. Sen. Mark Begich proposed to establish a Federal Arctic Regional Coastal Advisory Council that could tax the industry for its expenses and require industry to participate in its proceedings with no vote, “in good faith.” The presumption is that coastal voices need greater amplification, even though their legal alliances with environmental groups have resulted in delayed exploration affecting all Alaskans. (July 2010. Governor opposes ARCAC)

• August 2009. A White House Ocean Policy Task Force created by President Obama via executive order held a hearing in Anchorage. The order specified that within six to nine months the Task Force would provide recommendations which he subsequently adopted. This effort claims to not, “require new legislation to be implement,” but actually, “directs Federal agencies to implement” Task Force recommendations under the guidance of the National Ocean Council, a not very subtle way to avoid Congressional scrutiny and usurp the constitutional rights of states. If anything, this initiative will delay or stop resource exploration and development of all kinds in many OCS and coastal areas.

• September 2009. The Environmental Protection Agency (EPA) visited Alaska to hear testimony on whether it should grant a Clean Air Act permit to Shell Oil. EPA’s reluctance to approve Shell’s reasonable applications for permits to explore the Chukchi and Beaufort seas on leases it purchased from the federal government in good faith has resulted in continual, unjustified rejections and delays in Shell’s exploration programs.

• March 2010. Gov. Sean Parnell urged the U.S. Army Corps of Engineers to withdraw its denial of ConocoPhillips Alaska’s permit application to construct a drill pad on its CD-5 Alpine Satellite Development within the National Petroleum Reserve-Alaska. One wonders where oil can be developed in America if not on leases acquired from the federal government in good faith within a national petroleum reserve!

• July 2010. The Parnell Administration vowed to fight “…Improper listings and critical habitat designations with sound science and cost data,” referring to efforts by the U.S. Fish and Wildlife Service (USFWS) to designate 187,166 square miles as a critical habitat for polar bears — an action Alaska and the Arctic Slope Regional Corp. believe will cost Alaskans hundreds of millions of dollars in economic potential.

• September 2010. The State of Alaska sued the Secretary of the Interior in U.S. District Court to overturn the federal moratorium on offshore drilling in Alaska’s OCS, on grounds that the Obama administration violated federal law and acted in an arbitrary and capricious manner.

• September 2010. Alaska challenged National Park Service regulations, claiming they violate federal law, usurp state sovereignty, and infringe the liberty of Alaskans.

• September 2010. Alaska objected to USFWS steps to seek wilderness designations for the 1002 area within the Arctic National Wildlife Refuge’s 19 million acres that would prevent development of up to 16 billion barrels of oil.

• September 2010. The State of Alaska petitioned the National Marine Fisheries Service (NMFS) to remove the eastern distinct population segment (DPS) of Steller sea lions from the list of species protected by the Endangered Species Act (ESA).

On Jan. 20, 2010, in his State of the State Address, Parnell discussed Alaska Statehood Act history, recalling that, “With statehood, the strong assumption prevailed that, as a fledgling state, we would be allowed to develop our own resources without constant federal interference.” He said the federal government, “misused the Endangered Species Act…proposed setting aside an area larger than the state of California as critical habitat for polar bears…hyperextends its reach by proposing to zone the oceans….”

After the Prudhoe Bay discovery in 1968, followed by passage of the 1971 Alaska Native Claims Settlement Act and subsequent construction of the trans-Alaska oil pipeline, Alaska’s brave new world was a challenge of plenty, how to wisely deal with wealth.

The pipeline is two-thirds empty today and its throughput declines by about 6 percent a year. The state’s entire economy is now one-third dependent on oil traversing the pipeline and the state government’s general fund is about nine-tenths dependent on that black oil income stream.

Since the majority of Alaska’s 570,000 square miles is controlled by the federal government, support for economic development by the feds is critical to pipeline throughput. To remain in operation for more than another 10 to 30 years, the pipeline needs throughput from the Beaufort and-or Chukchi seas, the National Petroleum Reserve Alaska and-or the Arctic National Wildlife Refuge—all controlled by the feds.

The citizens of Alaska — and their elected leaders — must cooperate with Alaska’s exploring and producing investors as never before if they are to jointly overcome the challenge of today’s brave new world: the challenge of shortage.

Overcoming the threatening paradigm shift toward vanishing state wealth and increased federal control of Alaska will require a dramatic improvement in federal attitude and policy, and a very inviting Alaska state investment climate. Confronting today’s brave new world could also require Alaska’s leaders to bravely sue the federal government for violation of the Alaska Statehood Act.

It is bad news that these two years of constant federal policy assault have delayed projects and endangered Alaska’s prosperity. The good news is that one or two election cycles could restore exploration and production normalcy within Alaska’s federal jurisdictions.



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